After yesterday's steep gains, the gold price held largely steady on Wednesday morning. The yellow metal traded above $1,235/oz on the spot market, slightly below where it opened. We are likely seeing a bout of profit-taking as gold prices take a pause. This is in spite of the dollar continuing to fall in the wake of Fed Chair Yellen's dovish comments yesterday.
Silver was actually 4¢ per ounce higher, moving above $15.50/oz after being in the red earlier. Meanwhile, platinum added around 0.6% to approach $980/oz. Palladium sank more than 1% early on before recovering most of these losses to trade near $580/oz.
Not the Dollar
The USD was slightly off this morning, falling about 0.2% on the DXY index to a shade below 95.0. In fact, March has been the greenback's worst month in over five years. Crude oil gained 2% at the opening bell, as well. Given that this dollar drop wouldn't account for gold's weakness, the most likely explanations for the precious metal's pullback on Wednesday are traders responding to encouraging economic data in the U.S., traders taking profits, and a natural pause following Tuesday's surge.
Part of that rosy economic data was the ADP private sector payrolls coming in at 200,000 new jobs added this month. This was driven largely by growth in the services sector, accounting for 191,000 of those new hires. At the same time, global stocks rallied across Europe and the rest of the world, excluding only Japan's Nikkei 225. Not only did the S&P 500 close at its highest in 2016 yesterday, but U.S. indices were also about 0.6% higher in early morning action.
This rush back into equities was not friendly to the gold price. The anticipated decline spoke mostly to trader behavior and the taking of quick profits off of yesterday's rally, though Tuesday's big gains did break a three-session losing streak.
Long Run Still Positive
Everything happening with the Federal Reserve continues to paint a fairly bullish case for gold and the other precious metals, however. Yellen's dovish stance seems to indicate that interest rates will remain lower for longer, pushing back expectations for the next rate increase until November. In fact, the market-implied odds of a rate hike to fall to 0% for the upcoming April meeting. The lower likelihood of tighter monetary policy thus boosts gold's relative attractiveness to yield-bearing assets and cash equivalents. At the same time, the fact that such dovish comments came from Yellen after a week of aggressively hawkish rhetoric from her peers throws market assurance out the window.
For now, Yellen "rescued" markets with her talk of accommodation. However, the polarized and contradicting signals from the Fed simply create even more uncertainty and confusion. As usual, in times of unclear economic trends and especially uncertain monetary policy, gold reigns supreme.
The gold price slipping back on Wednesday shifted some of the metal's technical numbers, but resistance likely remains mostly where you'd expect it: first at the 20-day moving average of $1,245/oz, and then at the key level of $1,250/oz. Support can be seen at the 5-day moving average of $1,226/oz and then $1,217/oz below that.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.